Exhibit 13
1997 Annual Report
KEWAUNEE Scientific Corporation
[Logo]
LABORATORY FURNITURE
FUME HOODS
. . . encouraging new discovery
[Picture of a display of Laboratory Furniture]
About the Cover
Kewaunee Scientific Corporation exhibits annually at The Pittsburgh Conference,
the largest event of its kind for the promotion of scientific advancements. Our
1997 exhibit set the stage for the Company's introduction of several new
products from the Laboratory and Technical Products Groups.
The cover photograph shows the front of our display, which was designed to
attract immediate interest. Revolving cylinders highlighted a miniature wood and
steel cabinet incorporating the new styles. Once inside the booth, visitors had
an opportunity to preview full assemblies of the design options available to
personalize their working environments. The photographs below depict two of five
new styles displayed at the Conference. Both employ a Kewaunee exclusive -- the
rounded shape of horizontal edges on doors and drawers.
The 1997 exhibit generated the highest level of interest in years. We are
confident these new product offerings provide an excellent opportunity to
maintain and grow the Company's market share with our existing customer bases,
as well as create an avenue to reach new customers.
[Picture of a display of the Company's Discovery Product line]
[Picture of a display of the Company's Explorer Product line]
Corporate Profile
Kewaunee Scientific Corporation provides innovative products of high quality to
the laboratory furniture marketplace. The Company's corporate headquarters are
located in Statesville, North Carolina. Manufacturing facilities for steel and
wood casework, fume hoods and worksurfaces are also based in Statesville.
Operations in Lockhart, Texas produce technical workstations, workbenches, and
related accessories for computers and light electronic assembly, testing and
storage.
For 91 years, the Company has been a recognized leader in the design,
manufacture, and installation of laboratory furniture. Kewaunee products are
utilized in laboratories worldwide, ...encouraging new discovery.
Financial Highlights
Kewaunee Scientific Corporation
Percent
$ in thousands, except per share data 1997 1996 Change
- --------------------------------------------------------------------------------
Operating Data:
Net sales $61,961 $57,559 +7.6
- --------------------------------------------------------------------------------
Gross profit 13,965 10,724 +30.2
Percent of sales 22.5% 18.6%
- --------------------------------------------------------------------------------
Operating earnings 2,469 897 +175.3
Percent of sales 4.0% 1.6%
- --------------------------------------------------------------------------------
Interest expense 344 694 -50.4
Earnings before income taxes 2,166 361 +500.0
Income tax benefit (97) -
Net earnings 2,263 361 +526.9
Net earnings per share $ 0.96 $ 0.15 +540.0
Return on average equity 14.6% 2.5%
Cash dividends per share $ 0.08 -
- --------------------------------------------------------------------------------
Year-end Data:
Working capital $ 7,005 $ 5,047 +38.8
Total borrowings/long-term debt - 2,828
Stockholders' equity 16,586 14,515 +14.3
Book value per share $ 7.01 $ 6.13 +14.3
- --------------------------------------------------------------------------------
Table of Contents
2 Letter to our Stockholders
4 New Product Introductions
6 Management's Discussion and Analysis
8 Financial Statements and Notes
17 Reports of Independent Auditors and Management
18 Summary of Selected Financial Data
19 Quarterly Financial Data
20 Corporate Information
Page 1
Letter to our Stockholders
The past year was a transition year in the development of a revitalized
Kewaunee, as we began to see the benefits of the many programs and strategies
put in place over the past several years. I am pleased to report that these
factors, combined with an improved marketplace for laboratory furniture during
the year, enabled us to increase sales for the year to $61,961,000, up 7.6%
from the prior year, and increase net earnings for the year to $2,263,000, or
$.96 per share, up from net earnings of $361,000, or $.15 per share, for the
prior year.
Over the past several years, we have made continuing efforts to strengthen our
network of sales agencies and representatives. We realized the benefits of
these efforts in fiscal year 1997, as increased market penetration and
representation allowed us to increase sales overall modestly, but more
importantly, increase sales of our higher-margin products.
Our strategy to improve profit margins on the low-margin contract-bid portion of
our business produced significantly improved profit margins during the year, as
shipments of these orders were increasingly reflective of the Company's current
pricing strategy for this business. We also continued our investment in and
increased use of computerized machinery, which allowed us to improve
manufacturing efficiencies and reduce costs. The combination of these and other
improvements increased the gross profit margin for the year to 22.5%, up
substantially from 18.6% in the prior year.
We continue our emphasis on the development of new products. Our Laboratory
Products Group in Statesville, North Carolina, introduced several new product
lines in March 1997. The new Research Collection includes five distinctive
styles of steel casework, giving customers choices of new and modern
appearances. The Research Collection represents the most significant industry
design change to steel laboratory furniture in many years. The innovative,
flexible Alpha System 2000 is a new, user-friendly system of movable furniture
that is designed to serve the evolving needs of today's laboratories.
During the year, we continued to make design and manufacturing refinements to
our wood laboratory furniture to make these products more attractive and
competitive in the marketplace. We also began an aggressive strategy to upgrade
and expand our manufacturing capabilities for epoxy resin worksurfaces.
Our Technical Products Group in Lockhart, Texas, which serves the fast-growing
electronics and computer industries, had an outstanding year. Sales of our
technical products increased 31% over the prior year. Leading the way in this
sales growth was our new Evolution for LANs product designed to support computer
equipment in local area network environments. The sales outlook for these
products appears excellent.
We made significant progress in strengthening the Company's balance sheet.
Operating activities generated cash of over $4 million during the year, allowing
us to repay debt and reduce interest expense by $350,000 from the prior year.
Stockholders' equity increased during the year to $16,586,000, or $7.01 per
share. In November 1996, your Board of Directors reinstated a quarterly payment
of cash dividends, reflecting their confidence in the long-term success of the
Company.
Several organizational changes were made during the year to strengthen our
operations and better serve the needs of our customers. William A. Shumaker was
named Vice President and General Manager of the Laboratory Products Group. Mr.
Shumaker has served as Vice President of Sales and Marketing since joining the
Company in December 1993. Kurt P. Rindoks was named Vice President of
Engineering and New Product Development. Mr. Rindoks joined the Company in 1985
and most recently served as Director of Engineering and New Product Development.
Looking forward, we are continuing strategies that contributed to our progress
in 1997, and we anticipate fiscal year 1998 will bring additional opportunities
for growth and improved operations. We are particularly excited about the
outlook for our new product lines introduced during the past year, as we think
these new products will enhance our competitive position in the marketplace.
Page 2
Our progress in fiscal year 1997 was the result of the combined efforts of many.
We thank all of our employees and our network of agencies and representatives
for their hard work, dedication and enthusiasm over the past year. We also
express our sincere appreciation to our Board of Directors, our customers and
our suppliers, all of whom contributed significantly to our progress. Finally,
we thank you, our stockholders, for your continued support.
Sincerely,
/s/ Eli Manchester, Jr.
President
Chief Executive Officer
July 1997
[Photograph of Executive Officers]
Corporate Executive Officers:
(seated left to right) Kurt P. Rindoks; Eli Manchester, Jr.; Ronald D. Popiel
(standing left to right): James J. Rossi; William A. Shumaker; D. Michael
Parker; T. Ronald Gewin
Page 3
New Product Introductions
Kewaunee Scientific Corporation's theme, ...encouraging new discovery,
recognizes the importance of products and services of superior quality. One of
our primary goals is to enhance the ability of our customers to achieve their
objectives. When designing for the working environment of tomorrow, product
development must be cognizant of multiple customer requirements, including
safety, aesthetics, integration of computer systems and adaptable
configurations.
During 1997, we successfully engineered and introduced several new product lines
to supplement our core product offering. The five new steel styles of The
Research Collection and the innovative, flexible Alpha System 2000 were
developed through the Laboratory Products Group in Statesville, North Carolina.
Through further research, the Technical Products Group in Lockhart, Texas has
enhanced and expanded their Evolution furniture line for storing local area
network components.
The Research Collection
[Picture of Company Product] [Picture of Company Product] [Picture of Company
Product]
Discovery Explorer Advantage
[Picture of Company Product] [Picture of Company Product]
Trademark Contour
The Research Collection of steel laboratory furniture styles presents an
opportunity for our customers to give their own unique identity to the
laboratory. Five different design options are available utilizing one standard
case construction. Discovery employs rounded horizontal edges on the doors and
drawers, plus full recessed pulls. Explorer utilizes the same rounded edge
design, complemented by a contrasting wire pull. Advantage and Trademark feature
a flush surface and are available in both smooth and textured steel. Contour
offers full-width, integral door and drawer pulls, along with rounded horizontal
edges. Discovery, Explorer and Contour are Kewaunee design exclusives.
Page 4
ALPHA SYSTEM 2000
[Picture of a display of Company's Alpha System 2000 laboratory system]
ALPHA SYSTEM 2000 is an all new adaptable and convertible laboratory furniture
system.The modules easily assemble in straight wall, peninsula or island
arrangements, and are readily reconfigurable for changing space or task
requirements. This system utilizes steel or wood furniture components in
designer styles and finishes. The base unit suspension system, a Kewaunee
innovation, allows a continuous run of cabinets uninterrupted by brackets or
legs. The result is a user-friendly system of movable furniture that will
continue to serve the evolving applications of the laboratory.
EVOLUTION
[Picture of a display of [Picture of a display of [Picture of a display of
Company's Evolution Product line] Company's Evolution Product line] Company's Evolution Product line]
EVOLUTION FOR LANS, based on the successful Evolution product line, is designed
to support computer equipment in the local area network environment. Each
modular workstation can accommodate monitors, CPUs, back-up storage devices,
modems, printers, file servers, keyboards and accessories. The Evolution
"enclosure" provides an air-cooled, contamination-free, secure housing for
confidential files. The Evolution E/2/ height-adjustable, ergonomically-approved
workstation can be changed to any height from 30" to 42" using a very quiet
electric motor. The E/2/ is a very effective option for ADA requirements.
Page 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS. Sales for the year ended April 30, 1997 were $62.0
million, up 7.6% from fiscal year 1996 sales of $57.6 million. The increase in
sales for the year resulted from higher selling prices and increased market
penetration provided by the Company's strengthened network of agencies and
representatives. Fiscal year 1996 sales decreased 7.9% from fiscal year 1995
sales of $62.5 million. The 1996 sales decrease was primarily attributable to
lower sales of contract-bid laboratory furniture resulting from a change in the
Company's bidding strategy to increase the profitability of this business.
The Company's unfilled sales order backlog was $24.2 million at April 30, 1997,
as compared to $23.2 million at April 30, 1996 and $24.1 million at April 30,
1995.
Gross profit represented 22.5% of sales in fiscal year 1997, 18.6% of sales in
fiscal year 1996, and 16.2% of sales in fiscal year 1995. The increases in gross
profit margins in fiscal year 1997 and fiscal year 1996 resulted primarily from
significantly improved profit margins on sales of contract-bid laboratory
furniture, as shipments of these orders became increasingly reflective of the
change in the Company's bidding strategy to improve the profitability of this
business. Reduced manufacturing costs during these years also contributed to the
improved profit margins.
Operating expenses were $11.5 million in fiscal year 1997, $9.8 million in
fiscal year 1996, and $10.9 million in 1995. As a percent of sales, these
expenses were 18.6%, 17.1%, and 17.4% in fiscal years 1997, 1996, and 1995,
respectively. The increase in operating expenses in fiscal year 1997 was
primarily attributable to increased sales and marketing expenses and expenses
associated with incentive compensation programs.
Other income was $41,000, $158,000, and $230,000 in fiscal years 1997, 1996, and
1995, respectively. Other income in fiscal year 1996 primarily relates to life
insurance proceeds associated with one of the Company's employee benefit plans,
and other income in fiscal year 1995 primarily relates to a cash settlement
received from an investment.
Interest expense was $344,000, $694,000, and $554,000 in fiscal years 1997,
1996, and 1995, respectively. The decrease in interest expense for fiscal year
1997 resulted from lower levels of borrowings during the year under the
Company's revolving credit facility, coupled with lower interest rates paid
under more favorable borrowing terms negotiated during the year. The increase in
interest expense in fiscal year 1996 resulted from higher levels of borrowings
during the first half of the year.
The Company recorded a net income tax benefit of $97,000 in fiscal year 1997, as
the favorable impact of adjustments eliminating the Company's valuation
allowance on deferred tax assets exceeded income tax expense associated with the
current year's earnings. No income tax expense or benefit was recorded in fiscal
years 1996 or 1995. The effective tax rate for fiscal years 1996 and 1995
differs from the related statutory rates due to adjustments to the deferred tax
valuation allowance.
The Company had net earnings of $2.3 million, or 96 cents per share, and
$361,000, or 15 cents per share, for fiscal years 1997 and 1996, respectively.
This compares to a net loss of $1.1 million, or 46 cents per share, for fiscal
year 1995.
LIQUIDITY AND CAPITAL RESOURCES. Historically, the Company's principal sources
of liquidity have been funds generated from operating activities, supplemented
as needed by short-term borrowings. The Company believes that these sources will
be sufficient to support ongoing business levels, including capital
expenditures.
Operating activities provided cash of $4.2 million in fiscal year 1997,
primarily from earnings and an increase in accounts payable and accrued
expenses. Operating activities provided cash of $3.1 million in fiscal year
1996, primarily from earnings and a decrease in accounts receivable, and used
cash of $329,000 in fiscal year 1995.
Working capital increased to $7.0 million at April 30, 1997, from $5.0 million
at April 30, 1996, and the ratio of current assets to current liabilities
increased to 1.7-to-1 from 1.5-to-1 during this period. These improvements
Page 6
resulted as cash provided by operating activities was used to repay borrowings.
At April 30, 1997, the Company had no outstanding borrowings and had credit of
$8.0 million available under a revolving credit facility.
Capital expenditures of $1.2 million in fiscal year 1997 were funded by cash
provided by operating activities. Capital expenditures of $812,000 in fiscal
year 1996 were funded by cash provided by operating activities and equipment
financing arrangements. Capital expenditures of $840,000 in fiscal year 1995
were funded primarily by short-term borrowings. Capital expenditures of
approximately $2.0 million are planned for fiscal year 1998, primarily for the
purchase of production machinery. Fiscal year 1998 expenditures are expected to
be funded primarily by cash provided by operating activities during the year.
The Company resumed the quarterly payment of cash dividends in fiscal year 1997.
Dividends in the amount of four cents per share were declared and paid in both
the third and fourth quarters of the year. The Company plans to pay future
dividends in line with the Company's actual and anticipated future operating
results. The Company did not pay any dividends during fiscal years 1996 and
1995.
RECENT ACCOUNTING STANDARDS. The Financial Accounting Standards Board has issued
Statement No. 128, "Earnings Per Share," which will be effective during the
Company's 1998 fiscal year. SFAS No. 128 will change the method for calculating
earnings per share. Had the Company applied SFAS No. 128 for the 1997 fiscal
year, the effect on reported earnings per share would not be significant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Certain statements included in this report are forward looking and involve
risk and uncertainties that could significantly impact results. These factors
include, but are not limited to, economic, competitive, governmental, and
technological factors affecting the Company's operations, markets, products,
services, and prices.
Page 7
STATEMENTS OF OPERATIONS
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30
$ and shares in thousands, except per share data 1997 1996 1995
- -----------------------------------------------------------------------------------
Net sales (Note 1) $61,961 $57,559 $ 62,475
Costs of products sold (Note 2) 47,996 46,835 52,347
- -----------------------------------------------------------------------------------
Gross profit 13,965 10,724 10,128
Operating expenses 11,496 9,827 10,901
- -----------------------------------------------------------------------------------
Operating earnings (loss) 2,469 897 (773)
Other income, net 41 158 230
Interest expense (344) (694) (554)
- -----------------------------------------------------------------------------------
Earnings (loss) before income taxes 2,166 361 (1,097)
Income tax benefit (Note 4) (97) - -
- -----------------------------------------------------------------------------------
Net earnings (loss) $ 2,263 $ 361 $ (1,097)
===================================================================================
Net earnings (loss) per share $0.96 $0.15 $ (0.46)
===================================================================================
Weighted average number of
common shares outstanding 2,366 2,367 2,367
===================================================================================
STATEMENTS OF RETAINED EARNINGS
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30
$ in thousands, except per share data 1997 1996 1995
- ---------------------------------------------------------------------------------
Balance at beginning of year $ 9,361 $9,000 $10,097
Net earnings (loss) 2,263 361 (1,097)
Cash dividends declared - $.08 per share (189) - -
- ---------------------------------------------------------------------------------
Balance at end of year $11,435 $9,361 $ 9,000
=================================================================================
See accompanying notes to financial statements.
Page 8
BALANCE SHEETS
KEWAUNEE SCIENTIFIC CORPORATION APRIL 30
ASSETS $ and shares in thousands 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Current Assets
Cash $ 6 $ 16
Receivables, less allowance - $770 (1997);
$561 (1996) (Note 3) 12,864 13,212
Inventories (Notes 2 and 3) 1,946 1,213
Prepaid expenses and other current assets (Note 4) 1,649 1,205
-------- --------
Total current assets 16,465 15,646
- ---------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Land 109 109
Buildings and improvements 13,386 13,383
Machinery and equipment 12,936 12,348
- ---------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 26,431 25,840
Accumulated depreciation (16,605) (15,532)
Net property, plant and equipment 9,826 10,308
Other Assets 700 550
- ---------------------------------------------------------------------------------------------------------------
Total Assets $ 26,991 $ 26,504
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------
Current Liabilities
Short-term borrowings (Note 3) $ - $ 2,320
Current portion of long-term debt - 180
Accounts payable 5,136 4,505
Employee compensation and amounts withheld 1,727 1,182
Accrued insurance costs 439 605
Other accrued expenses 2,158 1,807
Total current liabilities 9,460 10,599
Long-Term Debt (Note 3) - 328
- ---------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Non-Current
Liabilities (Notes 4 and 6) 945 1,062
- ---------------------------------------------------------------------------------------------------------------
Commitments (Note 7)
Stockholders' Equity (Note 5)
Common stock, $2.50 par value
Authorized- 5,000 shares; Issued- 2,620 shares 6,550 6,550
Additional paid-in-capital 116 116
Retained earnings 11,435 9,361
Common stock in treasury, at cost
254 shares (1997); 253 shares (1996) (1,515) (1,512)
-------- --------
Total Stockholders' Equity 16,586 14,515
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 26,991 $ 26,504
===============================================================================================================
See accompanying notes to financial statements.
Page 9
STATEMENTS OF CASH FLOWS
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30
$ in thousands 1997 1996 1995
- ---------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net earnings (loss) $ 2,263 $ 361 $(1,097)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,515 1,624 1,793
Bad debt provision 298 39 125
Deferred income tax benefit ( 617) ( 71) ( 2)
Decrease (increase) in receivables 50 2,320 ( 569)
Decrease (increase) in inventories ( 733) 123 210
(Decrease) increase in accounts
payable and accrued expenses 1,978 (1,253) ( 727)
Other, net ( 584) 5 ( 62)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 4,170 3,148 ( 329)
- ---------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures (1,163) ( 474) ( 840)
Net decrease in short-term investments - 350 455
Net cash used in investing activities (1,163) ( 124) ( 385)
- ---------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Dividends paid ( 189) - -
Net (decrease) increase in short-term borrowings (2,320) 81 1,039
Proceeds from revolving credit facility
classified as long-term - - 3,000
Repayment of long-term debt
(including current maturities) ( 508) (3,147) (3,429)
- ---------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (3,017) (3,066) 610
- ---------------------------------------------------------------------------------------
Decrease in Cash ( 10) ( 42) ( 104)
Cash at Beginning of Year 16 58 162
- ---------------------------------------------------------------------------------------
Cash at End of Year $ 6 $ 16 $ 58
=======================================================================================
Supplemental Disclosure of
Cash Flow Information
Interest paid $ 311 $ 760 $ 575
Income taxes paid (refunded), net 58 ( 4) ( 94)
=======================================================================================
Supplemental Disclosure of Noncash
Investing and Financing Activities
Assets acquired under equipment financing $ - $ 338 $ -
=======================================================================================
See accompanying notes to financial statements.
Page 10
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Kewaunee Scientific
Corporation (the "Company") is a manufacturer of scientific laboratory and
technical workstations, including wood and steel furniture, fume hoods,
worksurfaces, sinks, and other accessories. Sales are made through purchase
orders and contracts submitted by customers, the Company's dealers and agents,
competitive bids submitted by the Company, and a national distributor. The
majority of the Company's products are sold to customers located in North
America, primarily within the United States. The majority of the Company's
products are used in chemistry, physics, biology, and other general science
laboratories in the industrial, commercial, educational, governmental, and
health-care markets.
Inventories. Inventories are valued at the lower of cost or market. Cost has
been determined using the last-in, first-out (LIFO) method for all inventories.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Depreciation is determined for financial reporting purposes principally on the
straight-line method over the estimated useful lives of the individual assets
or, for leaseholds, over the terms of the related leases, if shorter. Straight-
line and accelerated methods of depreciation have been used for income tax
purposes.
Use of Estimates. The presentation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Significant estimates impacting the accompanying financial statements relate to
the allowance for uncollectible accounts receivable.
Fair Value of Financial Instruments. The Company's financial instruments include
cash, long-term debt, accounts receivable, and accounts payable. The carrying
value of the long-term debt at April 30, 1996 approximates its estimated fair
value based upon quoted market prices. The carrying value of accounts receivable
and accounts payable approximates fair value due to the short-term nature of
these items.
Sales Recognition and Installation Services. Sales are generally recognized at
the date of shipment and, at that time, provision is made for the cost to
complete installations of products sold.
Income Taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. If it is more
likely than not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is provided.
Customer Concentration. Sales to the Company's national distributor represented
14 percent of the Company's sales in fiscal years 1997 and 1996 and 17 percent
of sales in fiscal year 1995.
Advertising Costs. The Company expenses advertising costs as incurred, including
trade shows, training materials, sales samples, catalogs, and other related
expenses. Advertising costs for the years ended April 30, 1997, 1996, and 1995
were $720,000, $587,000, and $340,000, respectively.
Long-Lived Assets. Effective May 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of SFAS No.
121 was not material to the Company.
Recent Accounting Standards. The Financial Accounting Standards Board has issued
Statement No. 128, "Earnings Per Share," which will be effective during the
Company's 1998 fiscal year. SFAS No. 128 will change the method for calculating
earnings per share. Had the Company applied SFAS No. 128 for the 1997 fiscal
year, the effect on reported earnings per share would not be significant.
Page 11
NOTE 2 -- INVENTORIES. The Company's inventories at April 30 consisted of:
$ in thousands 1997 1996
------------------------------------------
Finished goods $ 366 $ 253
Work-in-process 638 280
Materials and components 942 680
------------------------------------------
Total inventories $1,946 $1,213
==========================================
If inventories had been determined using the first-in, first-out (FIFO) method
at April 30, 1997 and 1996, reported inventories would have been $2.2 million
greater in each of these years.
NOTE 3 -- LONG-TERM DEBT AND OTHER CREDIT ARRANGEMENTS. Long-term debt at April
30, 1996 consisted of the following:
- --------------------------------------------------------------------------------
$ in thousands Amount
----------------------------------------------
Equipment financing $ 302
Capital lease obligations 206
---------------------------------------------
Total long-term debt 508
Less: current portion (180)
---------------------------------------------
Long-term portion $ 328
=============================================
During fiscal year 1997, the Company satisfied all equipment financing and
capital lease obligations.
The Company has a revolving credit facility which allows the Company to borrow
up to the lesser of $8.5 million, or the amount available under certain
eligibility formulas using qualifying receivables and inventories. As of April
30, 1997, there were letters of credit in the amount of $500,000 issued and
outstanding under the facility, leaving $8.0 million of unused credit available.
Under the facility, the Company makes monthly interest payments at a rate of the
greater of 6% or the lender's prime rate, calculated on the average loan balance
outstanding during each month. The prime rate was 8.5% at April 30, 1997. The
Company's receivables and inventories are pledged to the lender as collateral
securing borrowings under the facility. The facility extends through January
1999.
Page 12
NOTE 4 -- INCOME TAXES. The income tax benefit consisted of the following:
$ in thousands 1997 1996 1995
- --------------------------------------------------------------------------------
Current tax expense $ 520 $ 71 $ 2
Deferred tax expense (benefit) 397 140 ( 412)
Increase (decrease) in valuation allowance
on deferred tax assets (1,014) (211) 410
----------------------------------------------------------------------
Net income tax benefit $( 97) $ - $ -
======================================================================
The reasons for the differences between the above net income tax benefit and the
amounts computed by applying the statutory federal income tax rates to earnings
(loss) before income taxes are as follows:
$ in thousands 1997 1996 1995
----------------------------------------------------------------------
Income tax expense (benefit) at statutory
rate $ 736 $ 123 $( 373)
State and local taxes, net of federal
income tax expense (benefit) 78 24 ( 43)
Increase (decrease) in valuation allowance
on deferred tax assets (1,014) ( 211) 410
Other 103 64 6
----------------------------------------------------------------------
Net income tax benefit $( 97) $ - $ -
======================================================================
=============================================================================
As of April 30, 1997, the Company had general tax credit carryforwards of
$142,000 and alternative minimum tax credit carryforwards of $338,000 available
to offset future taxes payable. The general tax credit carryforwards expire in
2002.
Significant items comprising the Company's deferred tax assets and liabilities
as of April 30 were as follows:
$ in thousands 1997 1996
----------------------------------------------------------------------
Deferred tax assets:
Tax credit carryforwards $ 480 $ 786
Accrued retirement plans expense 352 434
Accrued insurance plans expense 190 280
Allowance for doubtful accounts 315 233
Inventory reserves and capitalized costs 190 181
Net operating loss carryforwards 10 67
Other 127 147
----------------------------------------------------------------------
1,664 2,128
Valuation allowance - (1,014)
Total deferred tax assets 1,664 1,114
----------------------------------------------------------------------
Deferred tax liabilities:
Book basis in excess of tax basis
of property, plant and equipment ( 910) ( 916)
Other ( 5) ( 78)
Total deferred tax liabilities ( 915) ( 994)
----------------------------------------------------------------------
Net deferred tax assets $ 749 $ 120
======================================================================
At April 30, 1997, deferred tax assets of $1,047,000 were classified in the
balance sheet as prepaid expenses and other current assets, and deferred tax
liabilities of $298,000 were classified as deferred income taxes and non-current
liabilities.
Page 13
NOTE 5 -- STOCK OPTIONS. During fiscal year 1992, stockholders approved the
1991 Key Employee Stock Option Plan. During fiscal year 1997, stockholders
approved an amendment to increase the number of shares available for options
under the plan from 130,000 to 230,000. Options are granted at not less than the
fair market value at the date of grant. Options are exercisable in such
installments, for such terms (up to ten years), and at such times, as the Board
of Directors may determine at the time of the grant. At April 30, 1997, there
were 108,500 shares available for future grants under the plan.
During fiscal year 1994, the stockholders approved the 1993 Stock Option Plan
for Directors. This plan allows the Company to grant options on 40,000 shares of
the Company's common stock. Each non-employee director of the Company is
eligible to receive an option to purchase 5,000 shares of the Company's common
stock on the effective date of the plan or on the date of commencement of
service as a director. Options are exercisable in four equal, annual
installments and expire five years from the date of grant. Options are granted
at the fair market value at the date of grant. At April 30, 1997, there were
10,000 shares available for future grants under the plan.
Stock option activity and weighted average exercise price is summarized as
follows:
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
Options Price Options Price Options Price
---------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 176,500 $3.49 130,000 $4.80 162,500 $4.90
Granted 26,000 3.88 63,000 2.84 2,000 3.25
Canceled (51,000) 5.22 (16,500) 4.75 (34,500) 5.18
Exercised ( 125) 2.31 - - - -
---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 151,375 $3.69 176,500 $3.49 130,000 $4.80
Exercisable at end of year 66,750 $4.06 41,625 $4.74 30,500 $4.83
===========================================================================================================================
The options outstanding and weighted average exercise price within the following
price ranges at April 30, 1997 are as follows:
Exercise price range $2.31 - $3.25 $3.87 - $4.62 $6.25
---------------------------------------------------------------------------------------------------------------------------
Options outstanding 56,875 90,500 4,000
Weighted average exercise price $2.74 $4.18 $6.25
Weighted average remaining contractual life (years) 7.2 6.0 0.3
---------------------------------------------------------------------------------------------------------------------------
Page 14
Fair Value Disclosures. The Company applies APB Opinion No. 25 and its related
interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for these plans. Had compensation costs
for these plans been determined based on the fair value at the grant dates for
awards under the plans consistent with the method of SFAS No. 123, the Company's
net earnings and net earnings per share for fiscal years 1997 and 1996 would
have been reduced to the pro forma amounts indicated below:
1997 1996
------------------------------------------------------------------------------------------------
Net earnings (in thousands)
As reported $2,263 $ 361
Pro forma 2,239 349
================================================================================================
Net earnings per share
As reported $ 0.96 $0.15
Pro forma 0.94 0.15
================================================================================================
The fair value of options granted under the Company's stock option plans during
fiscal year 1997 was estimated at $1.54 per share on the date of grant. The
options were valued using the Black-Scholes option-pricing model assuming 4%
dividend yield, expected volatility of 48%, risk free interest of 6.63% and an
expected life of 7.25 years.
NOTE 6 -- RETIREMENT BENEFITS. The Company has non-contributory defined benefit
pension plans covering substantially all salaried and hourly employees. The
defined benefit plan for salaried employees provides pension benefits that are
based on each employee's years of service and average annual compensation during
the last 10 consecutive calendar years of employment. The benefit plan for
hourly employees provides benefits at stated amounts based on years of service.
The Company's funding policy is to make quarterly contributions to fund the
plans during the participant's working lifetime. The quarterly contributions
have met ERISA's funding requirements. Plan assets consist primarily of common
stocks, government securities, and fixed-income funds.
The components of net pension expense consisted of the following:
$ in thousands 1997 1996 1995
------------------------------------------------------------------------------------------------
Service cost for the benefits earned
during the year $ 259 $ 266 $ 298
Interest cost on projected benefit obligations 412 384 356
Investment return on plan assets (437) (308) (178)
Net amortization and deferral 24 (57) (137)
------------------------------------------------------------------------------------------------
Net pension expense $ 258 $ 285 $ 339
================================================================================================
Page 15
Accumulated plan benefits, projected benefit obligations, plan net assets, and
funded status as of April 30 were as follows:
$ in thousands 1997 1996 1995
-----------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligations
(assumes no future salary increases):
Vested $ 4,286 $ 3,962 $ 3,453
Non-vested 202 186 279
-----------------------------------------------------------------------
Accumulated plan benefits $ 4,488 $ 4,148 $ 3,732
=======================================================================
Actuarial present value of projected
benefit obligations for service
provided to date (assumes future
salary increases): $ 5,744 $ 5,378 $ 5,045
Transition gain 96 128 160
Unrecognized net loss ( 347) ( 523) ( 902)
Plan net assets at fair value (5,178) (4,416) (3,751)
-----------------------------------------------------------------------
Accrued pension cost $ 315 $ 567 $ 552
=======================================================================
The weighted average discount rate and the rate of increase in future
compensation utilized in determining the actuarial present value of the
projected benefit obligations are 8 percent and 5 percent, respectively. The
assumed rate of return on plan assets is 9 percent.
The Company has a defined contribution plan covering substantially all salaried
and hourly employees. The plan provides benefits to all employees who have
attained age 21, completed one year of service, and who elect to participate.
The Company makes matching contributions equal to 50% of the qualifying employee
contribution, up to a maximum employer contribution of 2% of the participant's
compensation. Contributions by the Company in fiscal years 1997, 1996, and 1995
were $184,818, $150,572, and $151,173, respectively.
NOTE 7 -- COMMITMENTS. The Company has entered into various operating lease
agreements for machinery and equipment. Under the terms of these agreements,
future minimum lease payments for the years ended April 30 are as follows:
$ in thousands Amount
--------------------------------------
1998 $ 511
1999 503
2000 487
2001 251
2002 95
Thereafter 149
--------------------------------------
Total minimum lease payments $1,996
======================================
Most leases provide the Company with certain early cancellation rights, as well
as renewal, and purchase options. Rent expense under operating leases for
machinery and equipment was $421,000, $314,000, and $207,000 in fiscal years
1997, 1996, and 1995, respectively.
Page 16
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Kewaunee Scientific Corporation
We have audited the accompanying balance sheets of Kewaunee Scientific
Corporation as of April 30, 1997 and 1996, and the related statements of
operations, retained earnings, and cash flows for each of the three years in the
period ended April 30, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Kewaunee Scientific Corporation as of April
30, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended April 30, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
June 4, 1997
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The financial statements and
accompanying notes were prepared by management, which is responsible for their
integrity and objectivity. Management believes the financial statements, which
include amounts based on judgments and estimates, fairly reflect the Company's
financial position and operating results, in accordance with generally accepted
accounting principles. All financial information in this annual report is
consistent with the financial statements.
Management maintains internal accounting control systems and related policies
and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are properly recorded and executed in accordance
with management's authorization and that accounting records may be relied upon
for the preparation of financial statements and other financial information. The
design, monitoring, and revision of internal accounting control systems involve,
among other things, management's judgment with respect to the relative cost and
expected benefits of specific control measures.
The Company's financial statements have been audited by independent auditors who
have expressed their opinion with respect to the fairness of those statements.
Their audits included consideration of the Company's internal accounting control
systems and related policies and procedures. They advise management and the
Audit Committee of significant matters resulting from their audits.
D. Michael Parker
Vice President, Finance
Chief Financial Officer
Page 17
SUMMARY OF SELECTED FINANCIAL DATA
KEWAUNEE SCIENTIFIC CORPORATION
$ and shares in thousands,
except per share data 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Operating Statement Data:
Net sales $61,961 $57,559 $62,475 $66,068 $66,984 $74,944
Costs of products sold 47,996 46,835 52,347 53,325 56,364 59,538
- ------------------------------------------------------------------------------------------------------
Gross profit 13,965 10,724 10,128 12,743 10,620 15,406
Operating expenses 11,496 9,827 10,901 12,787 13,647 14,396
- ------------------------------------------------------------------------------------------------------
Operating earnings (loss) 2,469 897 (773) (44) (3,027) 1,010
Other income, net 41 158 230 88 166 475
Interest expense (344) (694) (554) (291) (300) (330)
- ------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 2,166 361 (1,097) (247) (3,161) 1,155
Income tax expense (benefit) (97) - - (44) (693) 354
- ------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 2,263 $ 361 $(1,097) $ (203) $(2,468) $ 801
Average shares outstanding 2,366 2,367 2,367 2,368 2,368 2,412
======================================================================================================
Per Share Data:
Net earnings (loss) $ 0.96 $ 0.15 $ (0.46) $ (0.09) $ (1.04) $ 0.33
Cash dividends 0.08 - - - 0.08 0.16
Year-end book value 7.01 6.13 5.98 6.43 6.49 7.44
======================================================================================================
Balance Sheet Data:
Current assets $16,465 $15,646 $18,430 $19,009 $18,334 $22,344
Current liabilities 9,460 10,599 11,702 11,914 11,777 11,943
Net working capital 7,005 5,047 6,728 7,095 6,557 10,401
Net property, plant and equipment 9,826 10,308 11,120 12,073 12,900 13,214
Total assets 26,991 26,504 30,074 31,566 31,776 36,066
Long-term debt - 328 3,206 3,111 3,607 4,657
Stockholders' equity 16,586 14,515 14,154 15,237 15,372 17,955
======================================================================================================
Other Data:
Capital expenditures $ 1,163 $ 812 $ 840 $ 933 $ 1,316 $ 2,189
Year-end stockholders of record 392 409 439 458 480 492
Year-end employees 560 499 575 595 636 747
======================================================================================================
Page 18
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years 1997 and 1996 were as
follows:
$ in thousands, First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------
1997
Net sales $16,280 $15,928 $14,837 $14,916
Gross profit 3,291 3,738 3,484 3,452
Net earnings 538 759 545 421
Net earnings per share 0.23 0.32 0.23 0.18
- ---------------------------------------------------------------
1996
Net sales $15,548 $15,385 $12,719 $13,907
Gross profit 2,673 2,996 2,428 2,627
Net earnings 70 148 87 56
Net earnings per share 0.03 0.06 0.04 0.02
- ---------------------------------------------------------------
RANGE OF MARKET PRICES
Kewaunee's common stock is traded in the NASDAQ/Over-the-Counter Market, under
the symbol KEQU. The following table sets forth the quarterly high and low
prices reported on the NASDAQ National Market System.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------
1997 High 5 1/4 5 5/8 7 1/2 7 3/8
Low 2 7/8 2 7/8 4 7/8 5 1/8
Close 3 5 1/8 6 5/8 5 1/8
- ---------------------------------------------------------------
1996 High 3 1/8 3 1/2 3 5/8 4 1/4
Low 2 1/8 2 1/4 2 5/8 3 5/8
Close 2 1/16 3 3 5/8 3 5/8
- ---------------------------------------------------------------
Page 19
CORPORATE INFORMATION
BOARD OF DIRECTORS
Margaret Barr Bruemmer (1)(2)(3)
Attorney
Milwaukee, WI
Wiley N. Caldwell (3)(4)
Retired President
W. W. Grainger, Inc.
Skokie, IL
John C. Campbell, Jr. (1)(2)
Private Consultant
Arlington, TX
Kingman Douglass (2)(3)(4)
Corporate Counselor
Summerland, CA
Eli Manchester, Jr. (1)(3)
President/CEO
Kewaunee Scientific Corporation
Statesville, NC
Thomas F. Pyle (3)(4)
Chairman
The Pyle Group, LLC
Madison, WI
James T. Rhind (1)(4)
Counsel to Bell, Boyd & Lloyd
Attorneys
Chicago, IL
(1) Executive Committee
(2) Audit Committee
(3) Financial/Planning Committee
(4) Compensation Committee
EXECUTIVE OFFICERS
Eli Manchester, Jr.
President and Chief Executive Officer
William A. Shumaker
Vice President and General Manager
Laboratory Products Group
T. Ronald Gewin
Vice President, Operations
Technical Products Group
D. Michael Parker
Vice President, Finance,
Chief Financial Officer,
Treasurer, Secretary
James J. Rossi
Vice President, Human Resources
Ronald D. Popiel
Vice President, Manufacturing
(Laboratory Products Group)
Kurt P. Rindoks
Vice President, Engineering and
New Product Development
(Laboratory Products Group)
CORPORATE OFFICES
2700 West Front Street, Statesville, NC 28677-2927
P.O. Box 1842, Statesville, NC 28687-1842
Telephone: 704-873-7202
EMPLOYMENT OPPORTUNITIES
Individuals interested in employment with Kewaunee Scientific Corporation should
contact the Vice President of Human Resources, Kewaunee Scientific Corporation,
P.O. Box 1842, Statesville, NC 28687-1842. Kewaunee Scientific Corporation is an
equal opportunity employer.
Page 20
STOCKHOLDER INFORMATION
Financial Information
The Company's Form 10-K financial report, filed annually with the Securities and
Exchange Commission, may be obtained by stockholders without charge by writing
the Secretary of the Company, Kewaunee Scientific Corporation, P.O. Box 1842,
Statesville, NC 28687-1842.
Recent financial information is available on the Internet at
http://www.kewaunee.com.
Independent Auditors
Deloitte & Touche LLP
Charlotte, NC
Notice of Annual Meeting
The Annual Meeting of Stockholders of Kewaunee Scientific Corporation will be
held in the 37th floor Annual Meeting Room at Harris Trust & Savings Bank,
Chicago, IL on August 27, 1997 at 10:00 a.m. Central Daylight Time.
Transfer Agent and Registrar
All shareholder inquiries, including transfer-related matters, should be
directed to:
ChaseMellon Shareholder Services, LLC
85 Challenger Road
Ridgefield, NJ 07660
800-288-9541
Product Information
Kewaunee Scientific Corporation products are available through a network of
sales representatives and a national stocking distributor.
For more information on the Company's laboratory products, contact the Marketing
Services Department in Statesville, North Carolina. Telephone: 704-873-7202; on
the Internet at http://www.kewaunee.com; e-mail: kewaunee@i-america.net.
For more information on the Company's technical products, contact the Company's
Lockhart, Texas operations. Telephone: 512-398-5292; on the Internet at
http://www.kewaunee-tpg.com; e-mail: custsvc@kewaunee-tpg.com.
TRADEMARKS
BasikBench, Evolution, Kemresin, Kemrock, Kemshield, Signature, Silhouette,
Sturdilite, TechStat, and Visionaire are registered trademarks of Kewaunee
Scientific Corporation. Alpha, Supreme Air, The Research Collection, Trademark,
Advantage, Explorer, and Discovery are pending trademarks of Kewaunee Scientific
Corporation.
[Logo]
KEWAUNEE
Scientific
Corporation